1. Global Business Today 7e
by Charles W.L. Hill
Welcome to Global Business Today, Seventh Edition by Charles W.L. Hill.

2. The Strategy of International Business
Chapter 11
The Strategy of International Business
Chapter 11: The Strategy of International Business

3. Introduction
Question: What actions can managers take to compete more effectively in a global economy?
Answer:
Managers must consider
the benefits of expanding into foreign markets
which strategies to pursue in foreign markets
the value of collaboration with global competitors
the advantages of strategic alliances
In previous chapters, we’ve focused on the environments in which companies operate. Now, we’re going to focus on the firm itself, and the actions that managers can take to compete more effectively in international markets. We’ll look at the strategies firms use and what factors might affect the choice of strategy. Why for example, did MTV originally try to use its American format and programming in foreign markets, and then change to a more localized strategy?

4. Strategy and the Firm Question: What is strategy? Answer:
A firm’s strategy can be defined as the actions that managers take to attain the goals of the firm
Typically, strategies focus on profitability and profit growth
Profitability refers to the rate of return the firm makes on its invested capital
Profit growth is the percentage increase in net profits over time
First though, let’s go over some basic definitions. A firm’s strategy can be defined as the actions that managers take to attain the goals of the firm.
Profitability can be defined as the rate of return the firm makes on its invested capital, while profit growth is the percentage increase in net profits over time. You already know that shareholders expect high profitability and high profit growth. So, how can managers achieve those goals?

5. Value Creation Answer:
Question: How do you increase the profitability of a firm?
Answer:
To increase profitability, value must be created for the consumer
Value creation is measured by the difference between V (the price that the firm can charge for that product given competitive pressures) and C (the costs of producing that product)
The two basic strategies for creating value are
differentiation
low cost
One way to achieve higher profitability and higher profit growth rates is through value creation. The more customers value a product, the more they’ll be willing to pay for it! So, we say that the value created by a firm is measured by the difference between what it can charge for the product given the competitive environment, and the cost of producing the product.
So, firms can increase their profits by adding value to a product so that customers are willing to pay more for it or by lowering their costs. Firms can achieve this by either following a differentiation strategy where the focus is on increasing the attractiveness of the product, or through a low cost strategy where the focus is on lowering costs.
You can probably think of countless products that are differentiated. Take the soft drink industry for example. You can buy cola with caffeine, without caffeine, with sugar or with sugar substitutes, with lemon flavoring, or cherry flavoring, and so on. In contrast, companies like Air Tran, rather than offering extra frills, are focused on providing a service at a lower cost than competitors, and so it flies to smaller airports that have lower costs as a means of keeping prices low.

6. Figure 11.1: Determinants of Enterprise Value
Strategy and the Firm
Figure 11.1: Determinants of Enterprise Value
So, as you can see, the firm’s value is a function of profitability and profit growth. Profitability is a result of lowering costs and adding value and raising prices, while profit growth comes from selling more in existing markets and expanding into new markets.

7. Strategic Positioning
To maximize profitability, a firm must
pick a position on the efficiency frontier that is viable in the sense that there is enough demand to support that choice
configure its internal operations so that they support that position
make sure that the firm has the right organization structure in place to execute its strategy
So, a firm’s strategy, operations, and organization must all be consistent with each other in order to achieve a competitive advantage and superior profitability
We say that for a firm to maximize its profitability it has to pick a viable point on the efficiency frontier where there is enough demand, it has to configure its internal operations to support that position, and it has to put the right type of organizational structure in place to implement the strategy.
In other words, because the Four Seasons hotel chain has positioned itself as a luxury chain, its costs are higher than a Marriott which is positioned as a mid-level hotel. So, the Four Seasons hotel must be able to charge a higher price, and customers must see the added value they’re getting, in order to justify the price.

8. The Firm as a Value Chain
Firms are essentially value chains composed of a series of distinct value creation activities, including production, marketing, materials management, R&D, human resources, information systems, and the firm infrastructure
Value creation activities can be categorized as
primary activities
support activities
Try to think of the firm as a value chain composed of distinct value creation activities like production, marketing, materials management, R&D, human resources, and so on. Each of these activities has to be managed efficiently.
We can categorize these activities as primary activities and support activities.

9. The Firm as a Value Chain
1. Primary Activities
involves creating the product, marketing and delivering the product to buyers, and providing support and after-sale service to the buyers of the product
2. Support Activities
provides the inputs that allow the primary activities of production and marketing to occur
Primary activities are those that involve creating the product, marketing and delivering it to buyers, and providing support and after-sales service to customers. Usually we divide primary activities into four functions, R&D, production, marketing and sales, and customer service.
Support activities are just what you’d think, activities that allow the primary activities to occur. They include things like information systems that manage inventory or track sales, logistics, and human resources. While you might think they’re not as important as primary activities, in fact they are! Without support activities, Dell Computer for example, would be lost!

10. The Firm as a Value Chain
Figure 11.4: The Value Chain
Here you can see how the value chain looks, and the breakdown of primary activities and support activities.

11. The Implementation of Strategy
Organization architecture - the totality of a firm’s organization - formal organizational structure, control systems and incentives, organizational culture, processes, and people
Organizational structure -
the formal division of the organization into subunits
the location of decision-making responsibilities within that structure
the establishment of integrating mechanisms to coordinate the activities of subunits including cross functional teams and or pan-regional committees
Remember though, that a firm can have the best strategy in the world, but if it can’t implement it, the strategy is useless. So, we have to consider the firm’s organization when we talk about strategy.
We use the term organization architecture to refer to the totality of a firm’s organization, including formal organizational structure, control systems and incentives, organizational culture, processes, and people. Let’s look at each of these elements individually starting with organizational structure.
Organizational structure refers to the formal division of the organization into subunits like product divisions or functions, the location of decision making responsibilities within that structure, for example whether its centralized or decentralized, and the establishment of integrating mechanisms to coordinate the activities of the subunits including cross functional teams and/or pan-regional committees.

12. The Implementation of Strategy
Figure 11.5: Organization Architecture
As you can see here, a firm’s organizational architecture is comprised of the firm’s structure, incentive and control systems, culture, people, and processes.

13. The Implementation of Strategy
Controls - the metrics used to measure the performance of subunits and make judgments about how well the subunits are run
Incentives - the devices used to reward appropriate managerial behavior
Processes - the manner in which decisions are made and work is performed
Organizational culture - the norms and value systems that are shared among the employees
People - employees and the strategy used to recruit, compensate, and retain those individuals
Controls are the metrics used to measure the performance of subunits and make judgments about how well managers are running those subunits.
Incentives are the devices that reward appropriate managerial behavior. They are often linked to performance incentives.
Processes are the manner in which decisions are made and work is performed within the organization. They include things like the process for deciding how to allocate resources, or evaluate managerial performance.
Organizational culture is the norms and value systems that are shared among the employees of an organization. We’ll talk more about the role of organizational culture in strategy later.
People include not only employees, but also the strategy used to recruit, compensate, and retain those individuals and the type of people that they are in terms of their skills, values, and orientation.

14. In Sum: Strategic Fit
So, to attain superior performance and earn a high return on capital, a firm’s strategy must make sense given market conditions
The operations of the firm must support the firm’s strategy
The organizational architecture of the firm must match the firm’s operations and strategy
if market conditions shift, so must the firm’s strategy, operations, and organization
Recall from the Opening Case, that Avon Products had to find the right balance between standardizing its production and marketing and achieving the cost savings associated with doing so, and allowing local subsidiaries to be relatively independent. To be successful, Avon had to find a strategy that made sense given the conditions in the market.
So, we can say that there must be a fit between market conditions, strategy, operations, and organization if a firm is to achieve superior performance.

15. In Sum: Strategic Fit Figure 11.6: Strategic Fit
Here the concept of strategic fit is shown visually. Notice how the firm’s strategy fits the conditions in the market, and is supported by the firm’s organization architecture and operations strategy.

16. Global Expansion and Profits
Firms that operate internationally can
Expand the market for their domestic product offerings by selling those products in international markets
Realize location economies by dispersing individual value creation activities to locations around the globe where they can be performed most efficiently and effectively
Realize greater cost economies from experience effects by serving an expanded global market from a central location, thereby reducing the costs of value creation
Earn a greater return by leveraging any valuable skills developed in foreign operations and transferring them to other entities within the firm’s global network of operations
Why do firms go global? What does global expansion offer to firms? Well, there are many benefits of expanding internationally. Firms that operate internationally expand the market for their products, realize location economies by locating value creation activities where they can be performed most efficiently, realize greater cost economies from experience effects, and earn a greater return by leveraging skills developed in foreign markets by transferring them to other parts of the organization.
Let’s look at these benefits more closely.

17. Leveraging Products and Competencies
To increase growth, a firm can sell products or services developed at home in foreign markets
Success depends on the type of goods and services, and the firm’s core competencies (skills within the firm that competitors cannot easily match or imitate)
Core competencies
enable the firm to reduce the costs of value creation
create perceived value so that premium pricing is possible
Most MNEs that sell in global markets began their international expansion by taking products that were developed for the home market and selling them in foreign markets. Procter and Gamble for example, developed Pampers for the U.S. market, but then found a market for them in other parts of the world.
How well a company can do this depends not only on what it’s selling, but also on its core competencies or skills within the firm that competitors can’t easily match or duplicate. These core competencies are the basis for competitive advantage because they enable the firm to reduce the costs of value creation, or create value in a way that justifies premium pricing. McDonald’s for example, has a core competence in managing fast-food operations that has allowed it to set up shop in more than 120 countries, and rely on the foreign markets for more than half its revenues! Toyota has a core competence in the production of cars.

18. Location Economies
Firms should locate value creation activities where economic, political, and cultural conditions are most conducive to the performance of that activity
Firms that successfully do this can realize location economies - the economies that arise from performing a value creation activity in the optimal location for that activity, wherever in the world that might be
Locating value creation activities in optimal locations
can lower the costs of value creation
can enable a firm to differentiate its product offering from those of competitors
Location economies come from performing value creation activities in the optimal location for that activity, wherever in the world that might be.
You already know from earlier chapters that countries differ in terms of economic, political, legal, and cultural factors. What firms have to do is identify where each value creation activity should be located to best take advantage of location economies. So, if the best programmers are in Silicon Valley, then programming activities should be located there. If the best assembly operations are in Mexico, then locate assembly in Mexico, and so on.

19. Location Economies
Multinationals that take advantage of location economies create a global web of value creation activities
Under this strategy, different stages of the value chain are dispersed to those locations around the globe where perceived value is maximized or where the costs of value creation are minimized
introducing transportation costs and trade barriers complicates this picture
political risks must be assessed when making location decisions
By locating value creation activities in their optimal locations, firms will either lower the costs of value creation which can help them achieve a low cost position, or firms will be able to differentiate their product from others.
When a firm is able to take advantage of location economies in different parts of the world, it creates a global web of value creation activities where different stages of the value chain are dispersed to those locations where perceived value is maximized or where the costs of value creation are minimized.
Keep in mind that transportation costs and trade barriers can complicate this picture. Even if a particular location offers an optimal environment for a particular activity, transportation costs or trade barriers may make it less desirable.
Similarly, it’s important to consider political risks when making location decisions. An unstable government can make an otherwise attractive location less attractive.

20. Experience Effects
The experience curve - the systematic reductions in production costs that have been observed to occur over the life of a product
a product’s production costs decline by some quantity about each time cumulative output doubles
Learning effects - cost savings that come from learning by doing
labor productivity increases when individuals learn the most efficient ways to perform particular tasks and management learns how to manage the new operation more efficiently
Another reason why firms might pursue an international expansion strategy is to take advantage of experience curve effects or systematic reductions in production costs that have been observed to occur over the life of a product.
Similarly, firms pursue learning effects or the cost savings that come from learning by doing. For example, when labor productivity increases, employees learn the most efficient ways to perform tasks, and managers learn how to manage operations more efficiently.

21. Experience Effects
Economies of scale - the reductions in unit cost achieved by producing a large volume of a product
Sources include
the ability to spread fixed costs over a large volume
the ability of large firms to employ increasingly specialized equipment or personnel
Serving a global market from a single location is consistent with moving down the experience curve and establishing a low-cost position
Expanding internationally can also allow firms to gain economies scale or reductions in unit costs that are achieved by producing in large volumes. Companies that achieve economies of scale are able to spread fixed costs over large volumes and/or use specialized equipment or personnel. So, for example, in the auto industry, a factory is efficient when it produces about 200,000 cars a year, preferably of the same model. If domestic demand is not large enough to warrant this level of production, firms might still be able to achieve it by exporting cars to foreign markets.
Moving down the experience curve is also strategically significant for companies. By doing this, companies can lower their costs of creating value. Firms that can move down the experience curve the fastest will have a competitive advantage. So, a firm will be motivated to produce, using a single plant to serve the global market, as a means of getting down the curve rapidly. Matsushita did this in the late 1970s and early 1980s. The company wanted to be the leader in the videocassette market, so it increased production substantially at a single location in Japan, and then served the world from this plant. Doing this, allowed Matsushita to drop its prices by half in just five years, and gain about 45 percent of the global market!

22. Leveraging Subsidiary Skills
To help increase firm value, managers should
recognize that valuable skills can be developed anywhere within the firm’s global network (not just at the corporate center)
use incentive systems to encourage local employees to acquire new skills
develop a process to identify when new skills have been created
act as facilitators to transfer valuable skills within the firm
Finally, skills that are developed in the home market can be transferred to other markets like MTV did when it transferred its format to other markets. Keep in mind though, that valuable skills can also be developed elsewhere in the firm and be transferred to the corporate office. McDonald’s for example, has found that its foreign stores often have ideas that can be incorporated elsewhere in the organization. In France for example, slow sales recently prompted a shift toward a more inviting atmosphere with an upgraded menu. The company is currently considering using this format at other locations where sales are sluggish.

23. Entering markets where competitors lack similar competencies
Summary
Firms that expand internationally can increase their profitability and profit growth by
Entering markets where competitors lack similar competencies
Realizing location economies
Exploiting experience curve effects
Transferring valuable skills within the organization
So, global expansion offers companies numerous ways to increase profitability and profit growth.

24. Competitive Pressures
Firms that compete in the global marketplace typically face two types of competitive pressures
pressures for cost reductions
pressures to be locally responsive
These pressures place conflicting demands on the firm
You may be thinking by now that by expanding into foreign markets firms can quickly realize location economies and experience effects. However, firms that compete internationally face two types of competitive pressures, pressure for cost reductions and pressures to be locally responsive. Unfortunately, these pressures usually place conflicting demands on the company!

25. Competitive Pressures
Figure 11.8: Pressures for Cost Reductions and
Local Responsiveness
As you can see, some firms face high pressure for cost reductions while others face high pressure for local responsiveness. Some really unlucky companies face pressures for cost reductions and local responsiveness simultaneously. Dealing with these pressures can be a strategic nightmare for companies! Let’s look at each type of pressure more closely.

26. Pressures for Cost Reductions
Pressures for cost reductions are greatest
in industries producing commodity type products that fill universal needs - needs that exist when the tastes and preferences of consumers in different nations are similar if not identical
when major competitors are based in low cost locations
where there is persistent excess capacity
where consumers are powerful and face low switching costs
To respond to these pressures, firms need to lower the costs of value creation
When a firm faces pressures for cost reductions, it has to try to lower the cost of value creation. This type of pressure is usually greatest in industries that produce commodity type products that fill universal needs like steel, when major competitors are based in low cost locations, where excess capacity is persistent, and where consumers are powerful and face low switching costs.
Firms can try to lower costs by mass-producing standardized products at optimal locations, or outsourcing to low-cost suppliers. Many companies have outsourced their call centers to India for example, to take advantage of lower wage costs. In fact, wages in 2007 at Indian call centers were so low compared to American call centers that companies were able to offer additional benefits like subsidized food and tuition assistance.

27. Pressures for Local Responsiveness
Pressures for local responsiveness arise from
differences in consumer tastes and preferences
differences in traditional practices and infrastructure
differences in distribution channels
host government demands
Firms facing these pressures need to differentiate their products and marketing strategy in each country
In contrast, when companies face pressure for local responsiveness, they incur the costs of differentiating their products or strategies. Pressures for local responsiveness come from differences in consumer tastes and preferences, differences in traditional practices and infrastructure, differences in distribution channels, and demands from host governments. Let’s talk about how each of these can affect the firm.

28. Pressures for Local Responsiveness
1. Differences in Consumer Tastes and Preferences
When consumer tastes and preferences differ significantly between countries, firms face strong pressures for local responsiveness
2. Differences in Infrastructure and Traditional Practices
When there are differences in infrastructure and/or traditional practices between countries, pressures for local responsiveness emerge
While many products like Coca-Cola are accepted around the world, when consumer preferences and tastes differ significantly between countries, companies have to adapt the product mix and/or the marketing message. Auto companies sell a lot of pick-up trucks to individuals in the U.S. for example, but have to market them as utility vehicles in Europe.
Similarly, differences in infrastructure and traditional practices between countries can force companies to adapt their strategies. If you’ve ever traveled to Europe for example, you may have encountered different voltage requirements. These differences of course, would require companies to sell products designed to meet the voltage requirements in each country. Recall also from the Opening Case that Avon developed numerous products to meet the specific needs of local markets.

29. Pressures for Local Responsiveness
3. Differences in Distribution Channels
A firm’s marketing strategies may be influenced by differences in distribution channels between countries
4. Host Government Demands
Economic and political demands imposed by host country governments may necessitate a degree of local responsiveness
Differences in distribution channels also prompt companies to change. In Brazil for example, about 36 percent of food retailing takes place through supermarkets. In Russia, supermarket sales account for less than 1 percent of food retailing! Cell phone companies have been struggling to identify ways to bring service to remote parts of India and Africa where traditional service methods weren’t viable.
Finally, companies may be required by host governments to be locally responsive. In the U.S. for example, pharmaceuticals have to go through FDA testing, and food products have to be labeled with nutrition information.

30. Choosing a Strategy Answer:
Question: How do the pressures for cost reductions and local responsiveness influence a firm’s choice of strategy?
Answer:
There are four basic strategies to compete in the international environment
global standardization
localization
transnational
international
So, how should companies compete in foreign markets? Well, there are four basic strategies, global standardization, localization, transnational, and international. Each strategy makes sense in certain situations depending on which pressures a firm is facing. Let’s talk about each one.

31. Global Standardization Strategy
Question: When does a global standardization strategy make sense?
Answer:
A global standardization strategy focuses on increasing profitability and profit growth by reaping the cost reductions that come from economies of scale, learning effects, and location economies
the goal is to pursue a low-cost strategy on a global scale
makes sense when there are strong pressures for cost reductions and demands for local responsiveness are minimal
The global standardization strategy focuses on increasing profitability and profit growth by capitalizing on the cost reductions that come from economies of scale, learning effects, and location economies.
This strategy makes sense when pressure is high for cost reductions, but low for local responsiveness. The goal is to pursue a low cost strategy on a global scale, so firms pursuing this type of strategy usually locate in a few optimal locations and produce standardized products. Have you thought of any companies that fit this profile yet? You might have suggested Motorola, Texas Instruments, or Intel. Keep in mind though, that this strategy doesn’t work for every company as Vodafone found out when it tried to use it in Japan. You can learn more about Vodafone’s experiences in the Management Focus in your text.

32. Localization Strategy
Question: When does a localization strategy make sense?
Answer:
A localization strategy focuses on increasing profitability by customizing the firm’s goods or services so that they provide a good match to tastes and preferences in different national markets
makes sense when there are substantial differences across nations with regard to consumer tastes and preferences, and where cost pressures are not too intense
A localization strategy focuses on increasing profitability by customizing the firm’s goods to meet the needs and preferences of the local market. As you’ve probably guessed, this strategy is appropriate when consumer tastes are substantially different between countries, and pressures for cost reductions are low.
Firms using a localization strategy increase the value of their product to the local market by customizing it to meet local needs. Since, costs pressures are low the additional costs that come with customization don’t present a problem. MTV has followed this type of strategy. Similarly, when NBC took its hit show Law and Order to France, the show was changed to reflect the differences between French and American police stations. In the past, shows were often exported as is, and simply dubbed into the local language, but now TV executives are facing demand for original shows based on American hits.

33. Transnational Strategy
Question: When does a transnational strategy make sense?
Answer:
A transnational strategy tries to simultaneously
achieve low costs through location economies, economies of scale, and learning effects
differentiate the product offering across geographic markets to account for local differences
foster a multidirectional flow of skills between different subsidiaries
makes sense when there are both high cost pressures and high pressures for local responsiveness
Suppose you’re facing both types of pressures. Then a transnational strategy might be appropriate. A transnational strategy tries to simultaneously meet demand for low costs by focusing on location economies, economies of scale, and learning effects, while at the same time, differentiates the product to meet the needs of individual markets. In addition, a transnational strategy fosters a multidirectional flow of skills between the subsidiaries within the firm’s global network.
As you might expect, this type of strategy can be very difficult to implement as companies like Ford have found out. Despite having problems with the transnational strategy in the past, Ford is hoping that its new One Ford approach that involves selling just a few models around the world will work. One company that has been successful with this type of strategy is Caterpillar.

34. International Strategy
Question: When does an international strategy make sense?
Answer:
An international strategy involves taking products first produced for the domestic market and then selling them internationally with only minimal local customization
makes sense when there are low cost pressures and low pressures for local responsiveness
Finally, an international strategy involves taking products that were initially produced for the domestic market and then selling them internationally. This type of strategy works when pressure is low for both cost reduction and local responsiveness. Procter and Gamble has used this strategy and so has Microsoft. You can read more about Procter and Gamble in the Management Focus in your text.

35. The Evolution of Strategy
Question: Is the choice of strategy static?
Answer:
As competition increases, international and localization strategies become less viable
To survive, firms may need to shift to a global standardization strategy or a transnational strategy in advance of competitors
We often see strategy evolve over time. A firm may start out using an international strategy, but then find that it has to shift to a global standardization strategy or transnational strategy as competition increases. Similarly, a localization strategy might initially give a firm a competitive advantage, but competition might also put pressure on price prompting the company to move to a transnational strategy. As you’ll see in the Closing Case, IBM’s strategy has evolved over time as the competitive environment has changed.

36. Strategic Alliances Question: What are strategic alliances? Answer:
Strategic alliances - cooperative agreements between potential or actual competitors
Examples
formal joint ventures
short term contractual arrangements
The number of international strategic alliances has risen significantly in recent decades
Now, let’s move on to strategic alliances. Strategic alliances are cooperative agreements between potential or actual competitors. They can include arrangements like joint ventures or shorter-term contractual agreements.

37. Advantages of Strategic Alliances
Question: Why form a strategic alliance?
Answer:
Strategic alliances are attractive because they
facilitate entry into a foreign market
allow firms to share the fixed costs (and associated risks) of developing new products or processes
bring together complementary skills and assets that neither partner could easily develop on its own
can help establish technological standards for the industry that will benefit the firm
You might wonder why a firm would want to form a strategic alliance with a competitor. Actually, there are several reasons. Strategic alliances can make it easier to get into foreign markets because a local partner will be familiar with operating in the market, they can allow firms to share the costs and risks of new product or process development, and they can bring together complementary skills and assets that neither company could easily develop on its own. Cisco and Fujitsu for example, were able to share know how through a strategic alliance. You can learn more about their alliance in the Management Focus in your text.

38. Disadvantages of Strategic Alliances
Question: What are the drawbacks of strategic alliances?
Answer:
Strategic alliances can give competitors low-cost routes to new technology and markets
Unless a firm is careful, it can give away more in a strategic alliance than it receives
Keep in mind though, that there is a downside to strategic alliances. They can give competitors low cost routes to new technology and markets, and without proper safeguards, a company might find that it gives away more than it receives!

39. Making Alliances Work Answer:
Question: How can firms increase the success of their alliances?
Answer:
Many international strategic alliances run into problems
The success of an alliance seems to be a function of three main factors
partner selection
alliance structure
the manner in which the alliance is managed
What can companies do to be sure their alliances are successful? Studies show that success in an alliance is a function of partner selection, alliance structure, and the management of the alliance. Let’s talk about each of these factors.

40. Making Alliances Work 1. Partner Selection A good partner
helps the firm achieve its strategic goals and has the capabilities the firm lacks and that it values
shares the firm’s vision for the purpose of the alliance
does not expropriate the firm’s technological know-how while giving away little in return
When a firm looks for a partner it should find one that helps the company achieve its goals and has the capabilities the firm lacks and values. A good partner will also share the firm’s vision for the goals of the alliance, and won’t act opportunistically.

41. Making Alliances Work 2. Alliance Structure A good alliance should
be designed to make it difficult to transfer technology not meant to be transferred
have contractual safeguards to guard against the risk of opportunism by a partner
involve an agreement in advance to swap skills and technologies to ensure a chance for equitable gain
extract a significant credible commitment from the partner in advance
A company should also structure the alliance so that it’s difficult to transfer technology that’s not meant to be transferred. There should also be contractual safeguards against opportunistic behavior, and the skills and technologies that are to be swapped should be agreed upon in advance so that there’s equitable gain.

42. Making Alliances Work 3. Managing the Alliance A good alliance
requires managers from both companies to build interpersonal relationships
should promote learning from alliance partners
should promote the diffusion of learned knowledge throughout the organization
Finally, for a strategic alliance to work well, managers from both companies need to work together to build interpersonal relationships. Trust is important in alliances.
Managers should also recognize that a major determinant of how much a company gains from an alliance is its ability to learn from its partner. So, rather than simply looking at an alliance as a means of cutting costs, managers need too focus on learning opportunities as well. Keep in mind though that even when firms find a good partner, structure the alliance well, and manage it, alliances between firms can still end. The long-term alliance between Toyota and General Motors known as NUMMI for example, recently ended in part because of the problems at General Motors.

43. Classroom Performance System
All of the following are examples of primary activities except
Logistics
Marketing and sales
Customer service
Production
Now, let’s see how well you understand the material in this chapter. I’ll ask you a few questions. See if you can get them right. Ready?
Question 1: All of the following are examples of primary activities except
Logistics
Marketing and sales
Customer Service
Production
If you picked A, you’re right!

44. Classroom Performance System
When different stages of a value chain are dispersed to those locations around the world where value added is maximized or where the costs of value creation are minimized, _____ is (are) created.
Experience effects
Learning effects
Economies of scale
A global web
Question 2: When different stages of a value chain are dispersed to those locations around the world where value added is maximized or where the costs of value creation are minimized, _____ are created.
Experience effects
Learning effects
Economies of scale
Global webs
If you picked D, you’re correct!

45. Classroom Performance System
Pressures for local responsiveness come from all of the following except
Excess capacity
Host government demands
Differences in consumer tastes and preferences
Differences in distribution channels
Question 3: Pressures for local responsiveness come from all of the following except
Excess capacity
Host government demands
Differences in consumer tastes and preferences
Differences in distribution channels
The correct answer is A. Did you get it right?

46. Classroom Performance System
When pressures are high for local responsiveness, but low for cost reductions, a _______ makes sense.
Global standardization strategy
International strategy
Transnational strategy
Localization strategy
Question 4: When pressures are high for local responsiveness, but low for costs reductions, ________ makes sense.
A global standardization strategy
An international strategy
A transnational strategy
A localization strategy
Did you pick D? I hope so!